Dialogue with Haipo Yang
Bull Market, Frequent Theft, the Landscape of Public Chains and the Future of DeFi | ChainCatcher
Haipo Yang is an early Bitcoin investor and a veteran in this industry. With deep insights into Bitcoin, Ethereum and even the crypto market as a whole, he used to lead the code deployment of ViaBTC Pool. As the founder of CoinEx, he has steered the team from Bitcoin-related business to the trading market, whose abundant good practices are worthy of reference by many other insiders. In this in-depth interview with ChainCatcher, Yang talked about many subjects such as the status quo of Bitcoin, Musk and the crypto market, DeFi innovation, and the landscape of public chains, which may provide you with some enlightenment.
ChainCatcher: After the slump on May 19, the market is growing to be stable. As a veteran, which stage do you think the crypto market is in? Is the bull market over?
Haipo Yang: I think we are still in the middle of the bull market, which is gradually stabilizing and bouncing up. In particular, there is no obvious decline in the market heat, the number of new entrants, or funds. Given the time cycle, it is too early to talk about the end of the bull market.
ChainCatcher: Musk is the most controversial figure in the uptrend. Some believe that the animal coin hustle and his comments on Bitcoin’s energy consumption contribute greatly to the market fluctuations. What do you think of that remark?
Haipo Yang: Musk is an idealist with a keen sense of virtual things as can be seen from his entrepreneurial experience. His position and global influence undoubtedly play a big role in the popularization of the crypto market.
The animal coin craze has little to do with Musk, who chose Dogecoin mainly because it is more decentralized. It is a wrong presumption, though prevailing, that Bitcoin has value while Dogecoin does not. The value of digital currencies depends on market consensus. Early Bitcoin holders including Musk have a prejudice against other cryptos. But for new entrants, Bitcoin is just one of the cryptos, and everyone should probe into the cryptos they favor.
ChainCatcher: Earlier before, BitMEX founder indicated the growing likelihood of Ethereum surpassing Bitcoin. As an early advocate of Bitcoin, how do you see the future value of both?
Haipo Yang: Ethereum will inevitably surpass Bitcoin in the long run.
On one hand, the two communities are completely different in positioning, dynamics, and users. Bitcoin’s only source of value lies in faith, which has now evolved into a religion. Although having brought a demographic dividend in the early days, it is of little use except for hoarding and speculation. That means Bitcoin can easily be replaced over time. Dogecoin comes as a vivid example. It created a new religion, and its users are far more active than those of Bitcoin. Ethereum’s value resides in being used. Unfortunately, Bitcoin failed to seize the opportunity of scaling; otherwise, Bitcoin would probably become a prevailing payment method in the world. In comparison, Ethereum is more open to scaling solutions. L2 and Ethereum 2.0 may seem somewhat inferior at the moment, but at least they can solve some problems.
On the other hand, BSC has already overtaken Bitcoin in terms of usage value, the number of users, and trading volume. If BSC is further developed and optimized, a large number of users will move to other public chains of BSC, which will make Ethereum less competitive to some extent. As Zhou Hongyi, the co-founder, chairman, and CEO of the Internet security company Qihoo 360 put forward about a decade ago, only those winning over the underdogs could win in the end. Pinduoduo’s success was strong evidence. Blockchain by nature is also an Internet product, and what matters the most is the scale effect. The core competitiveness must be built on a massive user base. Ethereum can only support tens or hundreds of thousands of users, which undermines its potential.
How to balance scaling and decentralization has always been a major issue, and the landscape of public chains will vary greatly.
ChainCatcher: But many institutions heavily invest in Bitcoin, and their words and deeds are what general investors will weigh when making decisions. How will the capital impact the market?
Haipo Yang: These institutions are just part of the market players and cannot determine the market trend. But it is undeniable that they can bring more influence during the bull run and will attract more to invest in the market.
ChainCatcher: Binance and BSC are big winners in the bull market, and their development path seems to be a useful reference for CoinEx and CoinEx Smart Chain (CSC). But their DApps saw frequent theft incidents due to code issues. Are there any hidden rules?
Haipo Yang: First of all, I need to make clear that it is not theft, but reasonable utilization of rules by hackers or probably the project developers themselves. The biggest problem is with the developers who have created immature rules. Instead of respecting the market and fully considering the market volatility, they only wanted to push up the total value locked (TVL) quickly, resulting in low staking. In case of a black swan event or manipulation, such DApps will become vulnerable to attack.
ChainCatcher: You used to position CoinEx as a broker and an investment bank, instead of an exchange. What’s the consideration behind the orientation?
Haipo Yang: Traditional transactions play a negligible role in the traditional financial market, but things are totally different in the crypto industry since all the business of eth industry, be it in the upstream, midstream, or downstream, is handled by exchanges. In this case, exchanges play a similar role to traditional financial brokers. But unlike stock exchanges that have all the transaction objects, crypto exchanges allow users to list tokens without permission. In this sense, a crypto exchange is more like an investment bank. So we prefer to position CoinEx as a broker and an investment bank rather than an exchange.
But crypto exchanges differ a lot from each other. Staying committed to the orientation and original intention, we become more aware of what we are going to do.
Take asset differentiation strategies for example. The specific assets included in the portfolios by exchanges determine the short-term and long-term goals of the exchange. Some prefer cryptos that stimulate the trading volume in the short run, at the cost of the exchanges’ reputation or even users’ interest. By doing so, these exchanges could hardly maximize, or even jeopardize, their long-term value. Biased toward long-term development, we welcome projects that can thrive in a long period, which is also an important criterion for our project screening.
Another example to illustrate my point is the project and market differentiation strategies. The products you offer determine the market segment you focus on. Cryptos were born to be global, and each country has its policies, language, and user habits. That requires us to weigh options of operation within a limited time, resulting in market differentiation. For the time being, as a global exchange, CoinEx is dedicated to serving users across the world, and to this end, we need to make strenuous efforts.
ChainCatcher: What are the goals and vision of CSC?
Haipo Yang: We started to work on CSC two years ago, and have made many attempts in this process. But it was not until the beginning of this year that we decided to shift to a smart contract chain. The development of DeFi for the past two years has convinced us that blockchain will develop into an underlying decentralized general-purpose platform based on the smart contract chain.
There are many problems as well. Ethereum suffers serious performance drawbacks due to the extreme extent of decentralization, and users are discouraged by the excessive transaction fees, leaving other alternatives some room for development. A typical example is BSC, yet still, it is too centralized due to the PoA adopted. To promote the performance and transaction processing capacity of the block, CoinEx may sacrifice decentralization a bit in exchange for compatibility with Ethereum. So we adopt the PoS, a good balance between decentralization and efficiency. Simply put, CSC benchmarks against BSC, yet is made more decentralized with many improvements on the basis of BSC.
ChainCatcher: What will CSC do with its ecosystem?
Haipo Yang: CSC is committed to creating the infrastructure of DeFi, and thus needs to make two major attempts. First, we will give incentives and formulate policies for the ecosystem. Second, CeFi and DeFi are different from each other, so we will help more new projects start from scratch, develop and thrive on CSC, instead of just serving the old projects migrated from the Ethereum ecosystem. Although these new projects rely on the CSC ecosystem, we will never take CSC the duplicate of the Bitcoin or Ethereum ecosystem, whether in terms of assets or users, and neither will we blindly pursue the TVL.
In general, CSC will not be defined as Layer 2 of Ethereum. Instead of introducing the ecosystem and asset projects of Ethereum, it will function as an independent, novice-friendly, open and free ecosystem.
ChainCatcher: Developers have always been an important part of ecosystem construction. What will the CSC Foundation do to attract and empower developers?
Haipo Yang: CSC has launched an ecological support fund to empower developers with some plans and capital, but will not engage too much in the development, governance, decision making, and code auditing of the projects. For new developers, in particular, we hope to create a more fair and open battlefield on CSC. Users are of equal importance since they are the key to the prosperity of a public chain’s ecosystem. The good news is that we have accumulated a large user base in the business of the mining pool, exchange, and wallet.
ChainCatcher: Across the crypto trading market, derivatives have long been chased after by all the market players. Yet among the numerous derivatives trading exchanges that emerged in 2018, only a few have survived to this date. What are the reasons in your opinion?
Haipo Yang: There are several factors.
Firstly, derivatives are oriented to a limited group of users, unlike spot trading that seizes the majority of users.
Secondly, the user life cycle of derivatives is relatively short as most users end up with losses due to excessive leverage.
Thirdly, many derivatives focus on community operation instead of innovation, which makes them short-lived. Indeed, the past few years have seen some good exchanges engaging in derivatives, but in the bull market with the industry continuously expanding, new users tend to choose spot trading exchanges rather than derivatives exchanges. So we can see derivatives exchanges such as FTX have started to shift business to spot trading, which is a sensible choice to satisfy market demands.
Last but not the least, some spot trading exchanges are also making inroads into the field of derivatives trading. A typical example is Binance, whose traffic of spot trading facilitates user diversion and conversion, and it will encroach on the derivatives trading market someday.
In general, the derivatives market in the crypto industry has become fully-fledged at the moment. Be it for futures or options or any other product, the market is already on a par with traditional finance, and as a result, we can hardly find more advanced innovations in products.
ChainCatcher: But major venture capital institutions still concentrate their efforts on the derivatives segment of the DeFi market.
Haipo Yang: DEX is the most important application of DeFi. It first entered the spotlight of the industry as early as 2013, but it was not made a reality until the birth of Uniswap that popularized AMM to enable permissionless token listing and solve issues of token listing and circulation for long-tail assets. By contrast, derivatives mainly focus on top assets such as Bitcoin and Ethereum, not long-tail assets, so neither permissionless token listing nor decentralization is required. The decentralization of derivatives does not bring benefits of decentralization but instead exposes the disadvantages such as poor liquidity and slow transactions. That’s why I consider the derivative DEX unnecessary.
ChainCatcher: Exactly. Ironically, many exchanges are launching their NFT platforms recently. Do you think they’re just following suit blindly?
Haipo Yang: Absolutely yes. But that’s just my point of view. As I once mentioned on Weibo, the biggest problem of NFT lies in the fact that it does not require blockchain. NFT just keeps accounts via blockchain, and it is essentially centralized because it still needs centralized institutions to endorse the ownership of the NFT. In reality, many NFTs launched by exchanges are similar to the previous post-coin cards and artworks, and such exchanges did not fare well in the end.
Still, NFT has its value in a narrow sense and can solve problems for a small group of people. Specifically, Uniswap V3 applies NFT. But it has nothing to do with blockchain if we take it as a big industry.
ChainCatcher: Many people consider it necessary to combine NFT with DeFi. What stage of development do you think DeFi is currently in?
Haipo Yang: I think DeFi is blowing bubbles at this moment, but that does not affect my recognition of its value. It is just like a completely open and free experimental field, which has nurtured many innovative features and projects and enjoys great potential. Among them, the most revolutionary innovation is DEX, followed by lending. As we can see, many projects are initially launched on decentralized exchanges, which contrast with centralized exchanges that seem to list tokens passively following DEX.
ChainCatcher: What could cause the bubble to burst?
Haipo Yang: Any bubble or cycle is a Ponzi scheme in a sense. New users create a bull market, so the one and only reason for the bubble burst is the exhausted inflow of new users.
ChainCatcher: The institutional form of DAO has been extensively discussed amid the prosperity brought about by DeFi. There are also many DAOs in China. What do you think of DAO’s value and innovation?
Haipo Yang: To be honest, I am skeptical about the way DAO is organized because the complete decentralized governance means nothing but developers’ irresponsibility. As I have observed, many DAOs have two obvious problems:
First, users seldom get involved; neither do they want to. Second, DAOs fail to make effective, valuable decisions. In fact, developers’ more involvement in governance and rule-making does not go against decentralization, because it is the operation of the entire blockchain, not the governance or development, that needs to be decentralized.